USA Trade to Latin America - Research Paper Example

? USA Trade to Latin America Inserts His/ Her Inserts Grade Inserts 27,09 Introduction Despite the existence of diplomatic tension between some countries in Latin America and the United States, Trade is one of the lasting issues in contemporary U.S.-Latin America relations. Historically, growth in U.S. trade with Latin America has outpaced that of all other regions, and over the last 15 years, the United States has signed reciprocal free trade agreements (FTAs) with 11 Latin American countries and implemented with nine of them. Trade between the United States and Latin America grew to approximately 82 % between 1998 and 2009, more than the 52% with the European Union, 72% with Asia, and 64 % for the rest of the world, according to the Congressional Research Service (Hornbeck, 2011). Last year’s growth elevated trade between the United States, and the region to a historic high of $772 million (Weintraub, Rugman &Boyd, 2004). Exports to the region have grown by 22%, while imports reached increased to 20 percent. Growth in trade between the United States and the Latin America has traditionally been high. This is because of the high population of Hispanics living in the United States and Latin America’s proximity to the U.S. There are approximately over 50 million Hispanics living in the United States. Latin American countries have made prominent advancement in trade liberalization over the past three decades, reducing tariffs significantly and entering into multiple subregional agreements of their own. Countries such as Chile, Peru, Brazil and Colombia helped through their efforts to liberalize trade and become more competitive. Recently, Colombia and the United States signed a free-trade agreement. Early Latin American trade agreements (1960s) were inward looking, defensive in nature, exclusive of industrialized countries, and so minimally successful in leading to lasting regional integration and facilitating development. Agreements struck more recently, under the rubric of the “New Regionalism,” have gone farther, cultivated by the desire to integrate more fully, and by the growing belief, that trade liberalization can be a cornerstone for promoting structural reform, development, and international competitiveness. Historically, growth in U.S. trade with Latin America has outpaced that of all other regions, and over the last 15 years, the United States has signed reciprocal free trade agreements (FTAs) with 11 Latin American countries and implemented with nine of them. These include the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), North American Free Trade Agreement (NAFTA), and bilateral FTAs with Peru and Chille. FTAs with Colombia and Panama were signed but not implemented, as they awaited congressional action. Still, a number of large economies in South America are not part of U.S. FTAs. They have resisted a region wide agreement, the Free Trade Areas of the Americas (FTAA) because it represented an extension of the same trade model used by the United States in bilateral agreements. Many countries south of the Caribbean Basin have been hesitant in entering into such a deal because it does not meet their principal negotiation objectives. Brazil, Argentina, and Venezuela do not rely on U.S. regional unilateral preferential arrangements (e.g., the Caribbean Basin Initiative or Andean Trade Preference Act), and would have to redefine their sub regional trade pacts). They are less compelled to capitulate to U.S. demands because they are far less dependent on the U.S. economy (Chauffor & Maur, 2011) On the other hand, Chile, which has long followed a policy differing from that of its neighbours, has signed the Trans-Pacific Strategic Economic Partnership (P4) with Singapore, New Zealand and Brunei. The P4 came into force in May 2006. All party countries are members of the Asia-Pacific Economic Cooperation (APEC) forum. The United States was to join the group as well, but has not yet done so. The US also signed a number of bilateral investment treaties (BIT) with Latin American countries. This has established conditions of direct foreign investment. These treaties include protection from expropriation, free transfer of means, fair and equitable treatment, full protection and security. Critics point out that it will be easier for US negotiators to control content, pace and direction of bilateral negotiations with individual countries than with larger negotiating frameworks. (Blackhurst & Kenny, 2005) If any differences between a multinational firm and a state occurred over investment made in a Latin American country, the firm may impose a lawsuit before the ICSID (International Center for the Resolution of Investment Disputes), which is an international court depending on the World Bank. The US-based multinational firm Bechtel following its expulsion from Bolivia during the Cochabamba protests of 2000 deposed the lawsuit. Local population had demonstrated against the privatization of the water company, requested by the World Bank, after poor management of the water by Bechtel. Thereafter, Bechtel requested $50 million from the Bolivian state in reparation. However, the firm finally decided to drop the case in 2006 after an international protest campaign. U.S and other numerous countries passed the BIT. These countries included Argentina (1994), Bolivia (2001), Ecuador (1997), Grenada (1989), Honduras (2001), Jamaica (1997), Panama (1991, amended in 2001), Trinidad and Tobago (1996). Others where signed but not ratified: El Salvador (1999), Haiti (1983 – one of the earliest, preceded by Panama), Nicaragua (1995). (Baldwin, Kantor & Nolan, 2006) For the United States, reciprocal FTAs liberalize trade in U.S. goods and services in a region with declining, but still relatively high applied tariff rates. In many cases, these same countries already had preferential access to the U.S. market under unilateral arrangements such as the Generalized System of Preferences (GSP), the Caribbean Basin Initiative (CBI), or the Andean Trade Preference Act (ATPA), so moving to a reciprocal agreement opened markets for U.S. goods. It has also been argued that progress made at the regional level can provide incentives to “sustain” multilateral negotiations at the World Trade Organization (WTO), although the disappointing pace of Doha Development Round may point to the limits of this influence. FTAs with Latin America also support U.S. foreign policy, which has historically viewed much of the region as a strategic backyard. Enhancing social stability through trade-led growth and development has been one long-term goal of FTAs, and thereby more broadly supportive of U.S. regional security goals. According to Hornbeck (2011), the United States and 33 countries in Latin America and the Caribbean hoped to negotiate an all-embracing Free Trade Area of the Americas (FTAA). However, the mood has changed. The Democrats, who won control of the American Congress, do not trust the trade agreements. They reflect widespread fears that globalization has made jobs more insecure in the United States. Mercosur, the trade block led by Brazil, backed away from an FTAA in favour of the Doha round of WTO talks, but these have stalled too. All this comes as some governments in Latin America, led by Venezuela's Hugo Chavez, are turning their backs on open trade (Chauffour & Maur, 2011) Some countries have negotiated bilateral free-trade agreements (FTAs) with the United States. George Bush's administration found it hard to convince Congress to approve them. Even before the Democrats took control, the Central American Free Trade Agreement (known as CAFTA-DR) was passed by just two votes; as well as Peru, deals with Panama and Colombia (and South Korea). Some still await approval. U.S.-Latin America Trade Issues According to Hufbauer and Schott (1994), from a purely commercial perspective, market access remains a significant key to understanding U.S. goals for improving trade relations with Latin America. There are three recognized components to this idea. The first involves lowering barriers to allow improved market access for U.S. goods, an issue that varies in significance with each country. The second is achieving market access under the same rules as other Western Hemisphere countries, an increasingly complex goal given the ongoing proclivity of the United States and Latin American countries to pursue bilateral agreements. The third entails guaranteeing that improvements are permanent, providing confidence to U.S. businesses that trade and investment can be undertaken in a predictable environment. Reducing tariffs remains a vital U.S. trade policy goal, despite the declining average tariff rates in much of Latin America predictable environment. Non tariff barriers are another fertile area for negotiation. The United States negotiated trade-related issues over Latin American legal and regulatory environments in the U.S.-Chile FTA and CAFTA, with the potential for improving trading conditions for some of the competitive industries in U.S. These are issues that will continue to generate deep interest as other bilateral negotiations and the FTAA move forward. There are also differences about how to handle social issues, such as labor and environmental provisions in trade agreements between some Latin American countries and the United States. Although mutually acceptable solutions had been negotiated in the U.S.-Chile FTA, the debate over CAFTA seems to be more of a problem. These issues point to the breadth of topics that now fall under trade discussions. They complicate negotiations and raise the question of whether the FTAA can meet expectations of becoming a hemispheric unifying force. Conclusion United States and Latin America through multilateral, regional, and bilateral negotiations have pursued trade liberalization with mixed results. In part, this reflects divergent priorities that have been difficult to reconcile fully. For many Latin American countries, for a successful agreement, reducing barriers to agricultural trade is top of their list. This goal includes reducing market access barriers (peak tariffs and tariff rate quotas—TRQs), domestic U.S. subsidies, and non tariff barriers (administrative rules, antidumping provisions). Although there are many other different issues, agriculture policy has played the biggest part in slowing advancement in the World Trade Organization (WTO), Doha Development Round and halting the Free Trade Area of the Americas (FTAA). The United States has made clear its unwillingness to address most agricultural and antidumping issues in a regional agreement like the FTAA. This is to preserve its bargaining leverage in the WTO against other subsidizing countries such as the European Union and Japan. Latin American countries have their own sensitive issues, and a particular concern in some countries is to ease subsistence agricultural sectors slowly toward trade liberalization (Simmonds, 1992) Reconciliation of the disparate trade arrangements in the Western Hemisphere will be impossible in the absence of a complementary multilateral solution. Without a hemispheric-wide solution, and given the limitations to further expansion of U.S. bilateral FTAs, alternatives are being debated on how to deepen hemispheric trade relations. One emerging line of thinking calls for reform of the U.S. FTA template, including reopening existing FTAs to revise and deepen labor and environment chapters, among others. Nonetheless, a hemispheric-wide Free Trade Areas of the Americas (FTAA) has eluded the region, and there appears to be little interest in pursuing the current U.S. FTA model by those countries that have yet to sign on to one. Under these circumstances, the future for deepening regional economic integration is uncertain. As of today, trade remains important to good U.S.-Latin America relations, a vital factor to consider for the future of U.S. trade policies. References Blackhurst, R. and Kenny, A. (2005). Regional Integration and the Global Trading System, Nueva York: St. Martin”s Press Chauffour, J. and Maur, C.(2011). Preferential Trade Agreement:Policies for Development. Washington DC. Published by World bank. Edward, B., Kantor, M. and Nolan, M. (2006). North American free trade agreements: Volume 1.Kluwer Law International. Printed in The Netherlands. Hornbeck, J (2011). U.S.-Latin America Trade: Recent Trends and Policy Issues. Journal on Trade policies. Congressional Research Service. Jonathan, C., Garcia, E. and Hernando, O.(2006) Latin American Investment Protections: Comparative Perspectives on Laws. Journal of International Arbitration 23(1): 1–24, 2006. Weintraub, S., Rugman, M. and Boyd, G. (2005). Free Trade in the Americas: Economic and Political Issues for Governments and Firms. Journal of Latin American Studies. Cambridge University Press. Read More